U.K. 10-Year Gilts Advance on Demand for Safety; Pound Climbs

By David Goodman -
Apr 6, 2013

U.K. government bonds advanced, with
10-year yields falling to the lowest level since September, as a
report showing U.S. payrolls grew by the smallest in nine months
in March boosted demand for safer assets.

Benchmark 10-year gilt yields dropped for a fourth week,
the longest run since November, after data showed the euro-
region economy is struggling to grow and amid concern financial
turmoil in Cyprus could reignite the region’s sovereign-debt
crisis. The Bank of England this week maintained its asset-
purchase target at 375 billion pounds ($575 billion) and kept
the benchmark interest rate at a record-low 0.5 percent. The
pound strengthened to a six-week high against the dollar.

“Gilts have been driven by external factors, as domestic
issues take a back seat,” said Nick Stamenkovic, a strategist
at RIA Capital Markets Ltd. in Edinburgh. “Investors are
fretting about the recessionary conditions in the euro-area
economy and there are renewed concerns about the U.S., triggered
by a weak employment report. Gilts should remain well
underpinned near term.”

The 10-year gilt yield fell 14 basis points, or 0.14
percentage point, to 1.63 percent as of 5 p.m. London time
yesterday. That’s the lowest rate since Sept. 5. The 1.75
percent bond due September 2022 gained 1.185, or 11.85 pounds
per 1,000-pound face amount, to 101.03.

U.S. payrolls grew by 88,000 workers last month after a
revised 268,000 gain in February, Labor Department figures
showed yesterday in Washington. The median forecast of 87
economists surveyed by Bloomberg projected an advance of
190,000.

Pound Rallies

The pound rallied from a two-week low against the dollar
after an industry report showed Britain’s services output
expanded more than forecast last month.

A gauge of U.K. services output based on a survey of
purchasing managers rose to 52.4 last month from 51.8 in
February, Markit Economics and the Chartered Institute of
Purchasing and Supply said in London on April 4. Economists
surveyed by Bloomberg News forecast a reading of 51.5. A similar
index for the euro region fell to 46.4, below the 50 level that
indicates expansion for a 14th month.

The pound rose 0.9 percent in the week to $1.5336. It
climbed to $1.5363 yesterday, the most since Feb. 20. It dropped
to $1.5034 on April 4, the weakest since March 20. Sterling
depreciated 0.7 percent to 84.93 pence per euro.

The pound has declined 4.1 percent this year, according to
Bloomberg Correlation-Weighted Indexes, which track 10
developed-nation currencies. The dollar climbed 2.3 percent and
the euro gained 0.9 percent.

Gilt Sales

The Debt Management Office is scheduled to sell 3.5 billion
pounds of 10-year gilts on April 9, before offering 1.6 billion
pounds of inflation-linked debt due in 2024 two days later.

The National Institute of Economic and Social Research,
whose clients include the Bank of England, will release its
estimate for the U.K.’s growth in the three months through March
on April 9.

Gilts returned 1.4 percent this year through April 4,
according to indexes compiled by Bloomberg and the European
Federation of Financial Analysts Societies. German bunds gained
0.7 percent and Treasuries rose 0.4 percent.